by RenoCon
The Bogus Bank Recovery
At its core, the financial crisis is about uncertainty; who's holding what, how much it's worth, when it will blow up.
By Rana Foroohar | NEWSWEEK
Published Apr 25, 2009
From the magazine issue dated May 4, 2009
If you take the headlines at face value, it has been a good month for banks. Wells Fargo announced $3 billion in first-quarter profits, Goldman Sachs racked up $1.8 billion, JPMorgan Chase had $2.1 billion, Bank of America $4.25 billion and even beleaguered Citigroup tallied $1.6 billion in profits. Treasury Secretary Tim Geithner validated the good news by declaring that the "vast majority" of the nation's banks are now well capitalized and solvent. Markets rallied. The worst of the financial crisis, it seemed, had passed.
Smart investors know better. At the core, this financial crisis has been driven by uncertainty—about who's holding what, how much it's worth and when it might blow up. A careful look at last week's profit news reveals that there's still plenty of uncertainty lurking on the balance sheets of America's top banks.
First, the most glaring examples: even as Bank of America was chalking up its profits, it was also warning that it faced growing credit losses, due to a decline in credit quality across all of its businesses (the bank's provisions for credit losses rose to $13.4 billion in the first quarter from $8.5 billion in the last quarter of 2008). "Make no doubt about it," said BOA chairman Kenneth Lewis, "credit is bad, and we believe it will get worse before it eventually stabilizes and improves." ...more
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